UK unemployment rose to 3.9% in the three months to August and employment declined in the latest 3-month period, hinting at a weaker labour market and headline average earnings growth dropped to 3.8%. Ultimately, soft employment figures are a secondary consideration to Brexit progress. The Bank of England’s Gertan Vlieghe stated there would be an argument for more monetary stimulus if Brexit uncertainty became entrenched.
After a spike yesterday morning, triggered by EU Chief Negotiator Barnier’s comments that a “deal was possible this week”. The Pound faded on comments that an agreement needed to be reached by the end of Tuesday, and causing a dip below 1.2650 on the Dollar and circa 1.1495 on the Euro.
Late on in the European day, reports that the Brexit deal was nearly shipshape triggered another spike in the Pound. Despite cautious remarks the overall confidence in a deal gradually increased pushing Sterling to 5-month highs near 1.2800 against the Dollar and 1.1594 against the Euro.
No deal was agreed overnight and doubts increased as to whether the House of Commons would approve any deal causing Sterling to drift lower. High volatility is expected today as developments could appear and throw the Pound in either direction.
The Greenback prompted some aggressive intraday short-covering move around the Euro. The positive Brexit headlines provided a strong boost to the British Pound, which coupled with improving risk sentiment, dented the USD's perceived safe-haven status against its European counterpart. Tensions between the US and China have also emerged over purchases of goods and Hong Kong, weighing on the mood.
There was no change in futures market expectations for a Fed rate cut at the October meeting with the chances of a further 0.25% cut seen at over 70%. European developments tended to dominate, especially with no comments from Federal Reserve speakers during the day. The latest retail sales data will be released on Wednesday.
The German ZEW investor confidence index declined slightly to -22.8 from -22.5 previously, although both figures were above consensus forecasts, there was little overall impact. The Euro was unable to make any headway and dipped lower into the New York open with a retreat to below 1.1000 against the Dollar as the US currency also recovered ground amidst a lack of underlying selling pressure.
Following reports that negotiators were closing in on a Brexit deal, German bond yields moved sharply higher which helped underpin the Euro and it regained ground to trade little changed into the sessions close. The common currency was unable to break 1.1050 and settled around 1.1030 as the Dollar advanced against commodity currencies. Markets will remain alert for comments from Fed speakers and European political developments with the Euro holding steady this morning.
Data to watch
09.30 GBP - CPI
13.30 USD - Core Retail Sales
13.30 USD - Retail Sales
14.00 GBP - Gov Carney Speaksrexit deal just around the corner, or the next one
Posted in Daily Market News on Oct 16 2019